The Obama administration has clarified and explained the mix of new housing policies that the president outlined in his State of the Union speech. Depending on how you count, the latest program is the fourth or fifth effort by the administration to help the housing market recover; each new program has met with mixed results at best. 

The heart of the president’s latest plan is a program that would provide borrowers who are current on their payments with an opportunity to refinance and take advantage of current low interest rates. This program would streamline existing programs at Fannie Mae, Freddie Mac, and the FHA, and would extend coverage to borrowers with loans that are not owned by the government-sponsored enterprises.

HUD Secretary Shaun Donovan emphasized the proposal would shift decision-making power to the borrower seeking to refinance. Rather than negotiating with their current lender for a concession, the borrower could line up a refinancing loan from any lender and use it to pay off the existing high-rate mortgage.

The cost of this program, estimated at five billion to ten billion dollars, is to be paid from a fee to be charged to large banks — a group of institutions that is not yet clearly defined. The administration’s theory is these large banks helped create the current housing crisis and were the beneficiaries of a government bailout. So who would be better to stick with part of the bill for cleaning up the mess?

The trouble is that theory has already failed. The administration proposed a big-bank tax or fee in 2010, when Democrats still controlled both Houses of Congress. Republicans, who now control the House, have already declared the bank tax proposal is unacceptable. Most observers are predicting any part of the president’s program that requires Congressional enactment will likely fail.

Other provisions in the proposal include:

• Implementing a pilot program to transition foreclosed properties to rental housing.

• Encouraging lender to grant a full year of forbearance for borrowers seeking work. (Some big lenders have already adopted this policy.)

• Creating a joint law enforcement task force to seek out wrongdoing in mortgage origination and servicing.

Administration Backs Homeowner Bill of Rights

A separate part of the administration’s housing relief package includes enacting a proposed Homeowner Bill or Rights. The White House says this proposal would include provisions mandating:

• Simple, easily understood mortgage forms. (The CFPB is already working on these.)

• No hidden fees or penalties. Fee changes must be disclosed before they take effect.

• No conflicts of interest. Servicers, investors, and junior lien holders must cooperate in loss mitigation efforts.

• Assistance for at-risk homeowners. Servicers must contact homeowners in trouble, maintain contact through a single customer service employee, and avoid foreclosure where there is a reasonable chance of finding an alternative solution.

• Safeguards against inappropriate foreclosures. Servicers must explain any decision based on a failure by the homeowner to meet payment obligations. Before foreclosure, the servicer must certify that loss-mitigation alternatives were considered and that the foreclosure complies with state law.

The agencies of the executive branch with oversight or other authority over servicing practices — the FHA, the USDA, the VA, and Treasury, through the HAMP program — will each take the steps needed in the coming months to implement rules for their programs that are consistent with these standards.

Because federal agencies play such a major role in the mortgage markets, it is likely the Homeowner Bill of Rights provision could largely be enacted without necessarily requiring Congressional action — and therefore, might actually see the light of day, regardless of the fate of the bank tax or other controversial parts of the proposal.